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Starting Up Start-Ups In Japan

Published: 28 Jun 2009 19:26:04 PST

TOKYO -- Despite a rash of government programs and regulatory reforms, start-ups in Japan still face challenges their American counterparts don't experience, says Stanford University professor Richard Dasher.

Young companies in the world's second-largest economy face a paucity of venture capital funding, a reliance on personal relationships to do business deals, and an over-dependence on niche markets, Dasher told journalists at the Foreign Correspondents' Club of Japan.

Although 16 million Japanese people work for companies with less than 30 employees, the largest segment of the labor market, business owners represent a declining percentage of the labor force. These small companies are forced to get by with less funding; last year, venture capitalists doled out $3 billion in investments here, in 3,000 funding deals, while American start-ups received $30 billion over 4,000 deals in venture backing.

This reality contrasts with the Japanese government's efforts, over the last decade, to jump-start entrepreneurship here after the well-publicized successes of Silicon Valley during the '90s. Dasher, who heads the U.S.-Asia Technology Management Center at Stanford, cited a host of programs aimed at boosting innovation and entrepreneurship in Japan. But while the government's goal is to commercialize research, bureaucrats are also trying to deal with a surplus of mid-level managers at big companies, he says, "A lot of Japanese government programs look suspiciously like outplacement programs."

Traditionally, Dasher says, small businesses here are family-owned and function as suppliers to the keiretsu conglomerates, focusing almost entirely on the domestic market. Even when they do go public, the founders frequently retain majority control instead of cashing out as they would in the U.S.: "The idea here seems to be to leave something of value for their children."

But this emphasis on building a company that grows slowly has led to a tiny number of smash-hit Japanese start-ups creating new industries, with SoftBank, which launched the software-distribution business here, being the most notable example.

Entrepreneurship might get increased attention once the new U.S. ambassador to Japan arrives in Tokyo, Dasher says. John Roos, now chief executive of venture law firm Wilson Sonsini Goodrich&Rosati, is expected to use his decades of Silicon Valley experience to highlight the role of start-ups in U.S.-Japan relations. "The difficulties that Japanese start-ups face are the same that international companies face" in Japan, Dasher says. "You don't have a brand, you're not one of the big boys, and it's hard to be taken seriously."

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